US ready to drive Iranian oil exports to zero, says US national security adviser

August 23, 2018 10:53 am

The US is prepared to use sanctions to drive Iranian oil exports down to zero, the US national security adviser, John Bolton, has said.

“Regime change in Iran is not American policy, but what we want is massive change in the regime’s behaviour,” Bolton said on a visit to Israel, as he claimed current sanctions had been more effective than predicted.

Donald Trump took the US out of Iran’s nuclear deal with the west in May and is imposing escalating sanctions, both to force Iran to renegotiate the deal and to end Tehran’s perceived interference in Yemen, Syria and Lebanon.

Complete removal of Iranian oil from world markets would cut oil supply by more than 4% probably forcing up prices in the absence of any new supplies.

Bolton was speaking as the new UK foreign secretary, Jeremy Hunt, met the US secretary of state, Mike Pompeo, for the first time in Washington to discuss how to reduce Iranian influence, despite Britain’s continued support for the nuclear deal.

In an interview with Axios, a US political website, Hunt praised Trump’s willingness to talk with leaders deemed to be hostile to the US, denying he was an isolationist. Trump has already met the North Korean leader, Kim Jong-un, and has even hinted at talks with the Iranian leadership.

“The traditional western foreign policy has been that if we disapprove of something someone’s done, we don’t just take action but we stop the engagement as well,” he said. “[Trump] takes the view that actually you need to engage with people. I think it’s a business mentality. He’s always looking for a way to recast the deal.”

Hunt is maintaining UK support for the deal signed in 2015, and according to Iran, the UK has even stepped in to advise Tehran on how to remain compliant with the deal by limiting plutonium from one of its heavy nuclear reactors.

Hunt has suggested the existing level of US sanctions already has the potential to change Iran’s “destabilising regional behaviour”, but additional pressure that led Iran to pull out of the nuclear deal completely might lead only to a more dangerous anti-western government being installed in Tehran.

Hunt stressed that the UK would not withdraw from the 2015 nuclear deal, but acknowledged it was an open question whether Tehran would decide if the remaining economic benefits warranted remaining inside the deal.

Sweeping US secondary sanctions on businesses that trade with Iran make it difficult for European governments to persuade EU companies it is worth the risk of continuing to do business with the country.

Bolton was bullish about the growing impact of sanctions. “We expect that Europeans will see, as businesses all over Europe are seeing, that the choice between doing business with Iran or doing business with the United States is very clear to them,” he said.

“[Trump] has made it very clear – his words – he wants maximum pressure on Iran, maximum pressure, and that is what is going on.”

British officials acknowledge that the US administration policy for the moment has secured Trump the best of both worlds – Iranian refusal to restart its nuclear programme due the EU’s continued support for the deal, and the imposition of a regime of secondary economic sanctions that is placing great pressure on the Iranian economy.

Fuller US sanctions, including actions against countries that trade in Iranian oil are due to come into force on 5 November, 180 days after the initial Trump announcement to withdraw.

The measures against Iranian oil importers, and banks that continue to trade with the Central Bank of Iran, will ratchet the pressure to a higher level.

Pompeo has set up an Iran Action group inside the US State Department to coordinate US leverage on companies and countries that cannot show that their trade, including in oil, has fallen significantly by November.

Measures may also be taken against firms that ensure ships carrying Iranian crude.

It is expected some of the major Iranian oil importers, such as Russia, China and Turkey, will either ignore the threat of US sanctions, or, possibly in the case of Iraq, Japan and South Korea, seek exemptions.

China takes a quarter of all Iran’s oil exports, and with Chinese banks little exposed to the US it can avoid the impact of Trump’s sanctions.

Major importers of Iranian crude in Europe include Italy’s ENI and Saras, Spain’s Repsol, France’s Total, and Greece’s Hellenic Petroleum. All these companies depend on access to US dollar financing and US suppliers, and most have significant operations in the US.

The EU in August introduced a blocking statute designed to give European firms immunity from US sanctions for trading with Iran. But its legal force is questionable since it requires EU firms to sue the US government for any losses caused by US sanctions. The statute is untested in court.

EU foreign ministers will meet at the end of the month to discuss the measures they have taken to protect the deal.

Iran’s foreign minister, Javed Zarif, this week demanded clearer practical steps from Europe to protect the deal, saying: “Europeans have been very good in declaring their positions, but to pay that price they need to make a decision and they have only a limited time for that decision and cannot wait forever.”

The German foreign minister, Heiko Maase, in an article in the German business daily, Handelsblatt, on Wednesday called for the EU to protect itself from secondary sanctions by increasing its autonomy from the US financial system.

The German chancellor, Angela Merkel, said she agreed with her foreign minister that relations with the US were changing but she stopped short of backing his call for a separate EU system for cross-border payments system to save the nuclear deal with Iran.